The Third World Debt in Okinawa: the G7 is unmasked!

August 2000 by Eric Toussaint

With the G7+1 summit taking place in Okinawa it’s time to check on the status of promises concerning the cancellation of Third World debt. More than a year ago, in June 1999 in Cologne, the Jubilee 2000 coalition handed the G7 leaders a petition with 17 million signatures calling for them to cancel the debt of 50 Third World countries. The G7 seemed to respond positively and committed to rapid cancellation of up to 90% of the debt of 41 heavily-indebted poor countries (HIPC Heavily Indebted Poor Countries
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
), making the fight against poverty a priority. $100 billion were to be devoted to this generous initiative, which was widely covered by the media.

Public announcements echoed round the world. Standing in front of the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
and World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

Assembly Michel Camdessus read out the letter written by the two young men from Guinea who died in the landing gear of a Sabena Airlines plane and he declared that their appeal had been heard thanks to the Cologne Initiative. In September 1999, President Bill Clinton announced that his country would unilaterally cancel 100% of the poor countries’ debt. He was followed by Gordon Brown, Great Britain’s Chancellor of the Exchequer, by Jacques Chirac etc.

At the time, the Committee for the Cancellation of Third World Debt (COCAD) cried out that this initiative was a sham and called for real solutions to be implemented.

So, what is the situation a year after Cologne?

Of the $100 billion announced, barely $2.5 billion have materialized. That represents about 1.2% of the debt of the HIPC. (The figure is $2.07 billion if ex Eastern-bloc countries are excluded). This is a far cry from the 90 or 100% cancellation announced! Whatever discussion there might be on just how much effort has been made, everyone now agrees that very little has been achieved.

The world’s richest countries are really stingy. The US Congress has allocated $63 million to debt reduction in 2000, $69 million in 2000, i.e. 1/4 of one-thousandth the $280 billion annual US defense budget. This is in the context of a budget surplus expected to amount to around $100 billion over the next decade. One can guess that both the Capitol and the Pentagon intend to spend part of this on the anti-missile shield project (so loved by Ronald Reagan in the 1980’s) rather than on canceling Third World debt.

Our calculations show that none of the creditor nations of the North will be contributing more than 1% of their defense budget to debt relief. Thus, the Belgian government plans to allocate BF800m. (about Euro 20m.) to Third World debt reduction. Furthermore, it should be pointed out that most of this sum has not yet been handed over. At the rate of BF800m. per annum it would take a century to cancel the BF90bn that the HIPC owe Belgium. It is also worth stating that the sums that industrialized countries allocate to debt relief are used to compensate private German, French and Belgian companies that participated in white elephant projects in countries that are now crushed by the burden of the debt (especially installations unsuited to local needs such as the Inga Dam in the Lower Congo or the Klöckner Iron and Steel Works in Cameroon). These white elephants were bought by regimes that were paid commissions by these companies for accepting “turnkey” packaged solutions that included both the projects and the loans. The contracts involved were gigantic and the companies involved were aided and abetted by western governments that wanted to keep close ties with their ex colonies (France, Great Britain, Belgium, Germany, Spain and Portugal) or that wanted to open up new markets by forming strategic alliances (United States). Most of the HIPC debt originated in the 1970’s and 1980’s.

An equally serious matter is the fact some of the funds allocated to compensating private sector creditors are drawn from development aid budgets. In short, the funds announced by the governments of the North aren’t reaching the people of the South; they are public funds that are being used in part to the advantage of private firms despite the fact that they are largely to blame for the disastrous situation in the Third World. One can rightly ask why it’s necessary to compensate private sector creditors who have already made substantial profits from juicy contracts with debt-laden countries as well as having received subsidies from governments of the developed countries.

Moreover, France and Japan are lying outrageously when they pretend that they are canceling the debts owed to them by the HIPC. The truth is that they are demanding that the debt be repaid. On receipt of the reimbursements, France and Japan will donate the funds, which is not the same thing as debt cancellation at all. Japan specifically demands that when the funds are handed back to the developing countries they be used to buy goods and services supplied by Japanese companies. In short, the debt does indeed have to be repaid and the funds that are “given” end up in the coffers of the “donor” country’s corporations.

The announcement made in Okinawa, on the 23rd July 2000, that Japan was making a $15bn “effort” in favor of Internet development in the Third World should be viewed in the light of this. This is yet another example of tied development assistance that induces the beneficiary countries to buy Japanese computer equipment. France is a little more discreet on this because, for several years now, significant progressive movements have been strongly critical of tied development assistance. However, it should be remembered that President Jacques Chirac has been offering debt relief to the HIPC for several years on the condition that they privatize their public sector to the advantage of French multinationals. Bouyges, Vivendi and other large French multinationals have bought whole sectors of the economies of the old French African colonies at discount prices thanks to this policy.

Finally, we must not forget that all these debt relief initiatives are linked to structural readjustment programmes imposed by the creditor nations which, even if they now refer to them as “Strategic Frameworks for Fighting Poverty”, force the countries concerned to continue opening their markets to goods from developed countries and extend fiscal policies that place the burden of taxation on the poor (VAT rates in Western Africa are in the range of 18 to 21% whilst, pretexting the need to encourage private investment, capital is not taxed directly). These policies also lead to widespread privatization of the water and energy sectors (Vivendi applauds this), the continuation of a policy of exporting at any cost which has detrimental effects on food safety (food crops Food crops Crops destined to feed local populations (millet, manioc, etc.), as opposed to cash crops, destined for export (coffee, cocoa, tea, groundnuts, sugar, etc.) are abandoned in favor of crops that can be exported) and is preventing the conservation of natural resources (deforestation and extreme exploitation of raw material and fuel resources), the privatization of communal land, the further lowering of public sector starvation wages, in short the application of hard-line neo-liberalism with a sprinkling of targeted subsidies for those in “abject” poverty.

In conclusion, the current initiatives are either totally inadequate or quite simply unacceptable.

If real solutions are to be implemented it will be necessary to lift the veil of secrecy that’s hiding the truth concerning Third World debt: the debt is really a mechanism for transferring wealth from the South to the North. The latest figures from the World Bank show that in 1998 the 41 HIPC transferred $1,680 million more to the North than they received (cf World Bank: “Global Development Finance, Net flows and transfers on debt” table, April 2000). That’s massive. The reality is that the HIPC are making the richest countries even richer.

If we widen the debate to cover all the developing countries then the scandal takes on outrageous proportions. In 1999 these countries transferred a net sum of $114.6 million to the creditor nations in the North (op. cit. p. 188)! That’s at least equivalent to the Marshall Plan Marshall Plan A programme of economic reconstruction proposed in 1947 by the US State Secretary, George C. Marshall. With a budget of 12.5 billion dollars (more than 80 billion dollars in current terms) composed of donations and long-term loans, the Marshall Plan enabled 16 countries (notably France, the UK, Italy and the Scandinavian countries) to finance their reconstruction after the Second World War. but transferred in a single year.

Another indicator: in total the developing countries reimbursed (in capital and interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. ) $350 billion in 1999 (op. cit. “Tables” p.24), i.e. seven times more than the total for Public Development Aid which amounted to $50 billion that year!

What are the real solutions?

The starting point must be to meet the basic human needs guaranteed by the Universal Declaration of Human Rights. Rather than speaking grandiloquently about the advantages to be gained by developing countries from access to financial markets and the supposed benefits of globalisation, it should be bourn in mind that each year sub-Saharan Africa reimburses almost $15 billion, i.e. four times more than it spends on health and education. Meanwhile, according to the United Nations Development Program, a budget of $40 billion dollars per annum over ten years would allow universal primary education (there are currently 1 billion people suffering from illiteracy in the world), guarantee access to potable water for the 1.3 billion people who are deprived of it, provide medical care to 2 billion people who don’t have access to it and ensure basic food needs for the 2 billion people suffering from anemia.

If we really want to see durable human development social justice then several urgent steps must be taken.

1. Cancel the Third World’s public external debt (it has already reimbursed more than four times what it owed when the debt crisis exploded in 1982). This external public debt amounts to around $1.6 trillion, i.e. less than 5% of global debt that currently stands at about $40 trillion. The US public debt (for a population of 275 million) amounts to $5 trillion, i.e. more than three times the total exterior public debt of sub-Saharan Africa (population 600 million). Canceling the Third World debt would require demanding that all the various creditors wipe out 5% of their accounting assets. That’s not too much to ask.

2. Start and successfully conclude judicial proceedings to end the impunity of those who got rich illegally on the backs of their citizens as well as their accomplices in developed countries. The late Mobutu’s fortune is believed to amount to at least $8 billion whilst the Democratic Republic of Congo is in debt to the tune of $13 billion. These illegally-gained assets must be expropriated and handed back to the plundered population via a democratically-controlled local development fund.

3. Abandon the structural readjustment policies that are so disastrous for Third World populations.

4. Apply a tax like the Tobin Tax Tobin Tax A tax on exchange transactions (all transactions involving conversion of currency), originally proposed in 1972 by the US economist, James Tobin, as a means of stabilizing the international financial system. The idea was taken up by the association[ATTAC and other movements for an alternative globalization, including the CADTM. Their aim is to reduce financial speculation (which was of the order of 1,500 billion dollars a day in 2002) and redistribute the money raised by this tax to those who need it most. International speculators who spend their time changing dollars for yens, then for euros, then dollars again, etc., as they calculate which currency will appreciate and which depreciate, will have to pay a small tax, somewhere between 0.1% and 1%, on each transaction. According to ATTAC, this could raise 100 billion dollars on a global scale. Considered unrealistic by the ruling classes to justify their refusal to adopt it, the meticulous analyses of globalized finance carried out by ATTAC and others has, on the contrary, demonstrated how simple and appropriate such a tax would be.

and devote the majority of its resources to socially just and ecologically sustainable development projects.

5. Deliver on the promises made by countries in the United Nations by raising Official Development Assistance ODA
Official Development Assistance
Official Development Assistance is the name given to loans granted in financially favourable conditions by the public bodies of the industrialized countries. A loan has only to be agreed at a lower rate of interest than going market rates (a concessionary loan) to be considered as aid, even if it is then repaid to the last cent by the borrowing country. Tied bilateral loans (which oblige the borrowing country to buy products or services from the lending country) and debt cancellation are also counted as part of ODA. Apart from food aid, there are three main ways of using these funds: rural development, infrastructures and non-project aid (financing budget deficits or the balance of payments). The latter increases continually. This aid is made “conditional” upon reduction of the public deficit, privatization, environmental “good behaviour”, care of the very poor, democratization, etc. These conditions are laid down by the main governments of the North, the World Bank and the IMF. The aid goes through three channels: multilateral aid, bilateral aid and the NGOs.
(ODA) to 0.7% of the Gross National Product Gross National Product
The GNP represents the wealth produced by a nation, as opposed to a given territory. It includes the revenue of citizens of the nation living abroad.
of developed countries (at the moment it’s only 0.24% for the OECD OECD
Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.
as a whole). The entire ODA should be bestowed as a donation (currently part of it is granted in the form of loans).

6. Stop deregulating trade because this impacts Third World populations directly.

These proposals certainly aren’t enough to solve all the injustices of North-South relations but they are necessary if human development and justice are to be given a chance.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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